CREDITS A study commissioned by the Greens/EFA Group in the European Parliament AUTHOR : Marc Auerbach The Greens / EFA group would like to thank Sol Picciotto, Francis Weizig and Markus Meinzer for their useful comments on the report. Graphics and design : Capucine Simon capucine.simon01@gmail.com http://capucinesmn.tumblr.com
www.greens-efa.eu @GreensEP www.facebook.com/greensefa/
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Greens/EFA Group - TOXIC TAX DEALS
TABLE OF contents I - EXECUTIVE SUMMARY – p 4 II - INTRODUCTION – p 5 III – OVERVIEW OF BASF – p 6 3.1 Lines of business – p 6 3.2 Corporate structure – p 8 3.3 Tax geography: Key subsidiaries located in tax-friendly jurisdictions – p 8 3.4 Lobbying against tax reform - p 8 IV – BASF IN THE NETHERLANDS: LOOKS CAN BE DECEIVING – p 9 4.1 BASF Nederland BV: Tax advantages of a Dutch holding company – p 10 4.2 €1.8 billion in tax-exempt dividends from low-tax subsidiaries – p 13 4.3 Using a “hybrid loan” to avoid tax – p 15
V – BASF’S CROP PROTECTION DIVISION: RED FLAGS FOR PROFIT SHIFTING – p 19 5.1 Background: Switzerland’s preferential tax regime for multinationals – p 19 5.2 BASF Agro BV: Dutch subsidiary uses Swiss branch for low taxes – p 20 5.4 BASF Agrochemical Products BV: Puerto Rican incentives provide a 2.4% tax rate - p 22 VI – BASF’S OTHER SWISS TRADING COMPANIES – p 24 VII - BELGIUM: PROFIT SHIFTING WITH GENEROUS LOOPHOLES – p 26
VIII – BRANCHING OUT IN MALTA: BASF’S €5 BILLION GROUP FINANCE COMPANY – p 28 IX - CONCLUSIONS AND POLICY PROPOSALS – p 30 X - ANNEX I. BASF LOBBIES AGAINST REFORMS – p 32 10.1 United States – p 32 10.2 Germany/Europe – p 32 10.3 OECD - p 32 XI - ANNEX II. KEY SOURCES – p 33 11.1 BASF Group annual reports and associated spreadsheets – p 33
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I. EXECUTIVE SUMMARY tax on earnings derived largely from transactions with BASF subsidiaries around the world. Estimated tax avoided: €202.0 million
This report presents original research into BASF’s use of aggressive tax planning strategies that exploit mismatches in national tax systems and take advantage of loopholes and incentives available in certain European states, including Belgium, Malta, the Netherlands and Switzerland. The report estimates that BASF used these tax planning strategies to avoid €923 million in tax over the 5-year period from FY2010 to FY2014.
from 2005 to 2014. Estimated tax avoided: €46 million with predominantly foreign income. Estimated tax avoided: Unknown
While tech companies like Google and Apple may steal the headlines by engineering spectacularly low effective tax rates for major European subsidiaries, this report presents evidence that industrial companies like BASF may also go
The fundamental lesson that emerges from this research is that multinationals pay tax where they generate value and
results are not as apparent.
mechanisms which govern the international tax system. It international tax: that multinationals are collections of independent entities rather than highly integrated and interdependent organizations and should be allocated to their subsidiaries by determining an arm’s length (or market) price for transactions between related entities.
BASF are summarized below. Unless otherwise noted, the FY2010 through FY2014. The report presents evidence that BASF: Used a network of Dutch holding companies to avoid German income tax on foreign-source dividends. Estimated tax avoided: €73.3 million Exploited the Netherlands’ overly generous participation exemption to avoid tax on income generated by an intraGroup “hybrid loan.” Estimated tax avoided, 2013-2015: €177.9 million
the report calls for policy changes, including: Mandatory public Country-by-Country-Reporting – to enable users of multinationals in each country are in alignment with their substantive economic activities. A Common Consolidated Corporate Tax Base (CCCTB) – a single set of rules for determining taxable
preferential 5% tax rate on an undisclosed amount of intellectual property income. Estimated tax avoided: Unknown Exploited Dutch rules which allow deductions for unrealized capital losses to avoid tax on income derived largely from sales to related companies in the Netherlands and Germany. Estimated tax avoided: €72.1 million Used intra-group trading activities to:
which multinationals operate, based on their substantive activities in those jurisdictions. A minimum corporate income tax throughout the European Union – to prevent a destructive race-to-thebottom on rates once other avenues of aggressive tax competition are closed through the adoption of a CCCTB.
branches in Puerto Rico and Switzerland. Estimated tax avoided: €375.6 million Avoid French income tax. Estimated tax avoided: €37.7 million
Without these changes, the multinationals and their tax consultants, together with states which choose to engage in destructive tax competition, will continue to get around
Estimated tax avoided: €46.9 million Used Belgium’s notional interest deduction to avoid
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Greens/EFA Group - TOXIC TAX DEALS
II. INTRODUCTION This report presents original research concerning BASF’s use
The report presents circumstantial evidence that BASF
tax subsidiaries and reduce the company’s overall effective tax rate. It details how BASF exploits opportunities that arise from aggressive tax competition by European states, including Belgium, the Netherlands, Malta and Switzerland.
occurs within multinational enterprises.4 This research thus group transactions. Multinationals may engineer intra-group
This research lends support to arguments made by a diverse group of experts that aligning tax with substantive economic activity requires a fundamental shift away from the broken paradigm that currently governs international tax in both the OECD and the EU.1 This paradigm is based
can be treated for tax purposes as performing low-valueadding functions, such as routine production, stripped-risk distribution or even contract R&D. Meanwhile, substantial business services or licensing intellectual property rights.5 The objective is to shift tax-deductible expenses to relatively
multinationals can be prevented by requiring intra-company transactions to be priced using an “arm’s length” standard.
tax subsidiaries, thus reducing the company’s overall tax bill. The purpose of this report is not to shame BASF but to illustrate the mismatches and gaps in European and national tax laws which practically guarantee that multinationals will adopt aggressive tax avoidance strategies. The scope of the report is necessarily limited to a subset of potential tax planning strategies used by BASF. This is due in part to the fact that many key subsidiaries are
abuses, except in the most egregious cases.2 This report should encourage greater public discussion of aggressive tax planning by industrial companies, which have been largely overlooked in recent debates focusing on spectacular tax avoidance by technology giants like Google and Apple. Despite the challenges posed by the physical nature of their assets and activities, industrial companies like BASF also engage in aggressive tax planning, which deprives governments of needed revenues and distorts competition. 3
designed to inform the public about corporate tax planning.
A note on the challenges of quantifying BASF’s tax avoidance
investigate the full extent of the company’s tax planning activities or to provide a quantitative estimate of overall tax avoidance. Where possible, the report provides estimates of the tax avoidance achieved by BASF through particular subsidiaries, structures and transactions. These estimates are based on the researcher’s best effort to understand the
of multinationals. But until they do, efforts to analyse and quantify tax avoidance will necessarily involve a certain
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III. OVERVIEW OF BASF BASF is the largest chemical company in the world, with €70.4 billion in sales, 112,000 employees, production sites in over 80 countries and more than 570 distinct business entities.6 The company was founded in Germany in 1865 and almost half of all BASF employees work in Germany today – 39,000 of them in Ludwigshafen, where BASF has its headquarters, major production and research facilities and an intermodal transport terminal.
graph 1: basf employees by region (fy 2015)
South America, Africa, Middle East 7 557 7%
17 428 15%
Germany 52 987 47%
North America 17 342 15%
Europe, Ex Germany 17 935 16% 3.1. Lines of business BASF sells basic chemicals, paints and coatings for plastics, and supplies chemicals to manufacturers in diverse sectors, including nutrition and health, pharmaceuticals and construction materials. The company’s products and technologies end up in just about every type of good imaginable – from turbines, solar panels and cars to food, shampoo, paper goods and LCD displays. BASF’s Crop Protection division, specializing in pesticides, recorded €5.8 billion in sales last year, making BASF one of the “Big 6” global agribusinesses.8 And BASF is even in the oil and gas business, with exploration and production operations in Europe, North Africa, Russia, South America and the Middle East, and a joint venture with Gazprom, a Russian company, to transport gas in Europe.
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Greens/EFA Group - TOXIC TAX DEALS
graph 2: BASF INTO 5 segments €Billion 18
€18.5
17 16 15
Sales
€16.7 €15.6
14
EBIT (earnings before interest and tax)
13 €13
12 11 10 1 8 7 6 5
€5.8
4 3 2
€2.1
1
€1.3
0 Chemicals
Performance products
€1.6 Functionnal materials & solutions
€1.1 Agricultural Solutions
€1 Oil & Gas
3. Functional Materials & Solutions (2015 sales: €18.5 billion; EBIT: €1.6 billion) sectors, especially the automotive, electrical, chemical and construction industries, as well as for household applications. Products include catalysts, battery materials, engineering plastics, polyurethane systems, automotive and industrial coatings and concrete admixtures as well as construction systems like tile adhesives and decorative paints.
Chemicals, Performance Products, Functional Materials & Solutions, Agricultural Solutions and Oil & Gas. 1. Chemicals (Sales: €16.7 billion; EBIT: €2.1 billion) Solvents, plasticizers and high volume monomers to glues and electronic chemicals as well as raw materials for protection and medicines.
4. Agricultural Solutions (2015 sales: €5.8 billion; EBIT: €1.1 billion) Products in the areas of chemical and biological crop protection, seed treatment and water management as well as solutions for nutrient supply and plant stress.
2. Performance Products (2015 Sales: €15.6 billion; EBIT: €1.3 billion) Vitamins and other food additives, as well as ingredients for pharmaceuticals, personal care and cosmetics, as well as hygiene and household products, fuels and lubricants, adhesives and coatings, and plastics. Products with industrial applications in the paper industry, in oil, gas and ore extraction, and in water treatment.
5. Oil & Gas (2015 sales: €13 billion; EBIT: €1 billion) Exploration and production in oil and gas-rich regions in Europe, North Africa, Russia, South America and the Middle East. Transport of natural gas in Europe, with joint venture partner Gazprom.
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3.2. Corporate structure
German workforce is engaged in managerial, administrative
BASF SE, a publicly traded company domiciled in Germany, is the ultimate parent company of the BASF Group. BASF SE is both the largest operating company in the Group and the direct or indirect owner of BASF’s interests in 251 fully consolidated subsidiaries, 32 partially consolidated
administrative capacities available in Germany, BASF has formed a number of foreign subsidiaries to handle functions to the Group’s hundreds of subsidiaries. These functions include: Ownership of major foreign subsidiaries and investments. Ownership of some BASF intellectual property, including certain patents and trademarks.
business entities.9 BASF SE publishes an annual report statements for itself.
Group companies. Trading activities.
3.3.Tax geography: Key subsidiaries located in tax-
which offer preferential tax rates or special tax exemptions for multinational corporations, including Belgium, Malta, the Netherlands and Switzerland. This research uncovered compelling circumstantial evidence that BASF uses them, at
Every BASF company is ultimately owned by BASF SE in Germany, where the Group has an enormous administrative apparatus.10 11 This disparity is likely due to the fact that a large share of the
graph 3: BASF employees, sales and income by region (% fy 2015) 47%
40% 37% 33% 30%
22%
22%
21%
19% 15%
15%
15%
15%
8%
7%
Employees
Germany
17%
17%
6%
6%
Sales by location of compagny
Europe, ex Germany
Sales by location of customer
North America
3.4. Lobbying against tax reform
6%
Operating income before special items
Africa, South America, Middle East
such information would not be useful to the general public. And BASF has also opposed efforts to require that secret tax rulings and advance pricing agreements concluded between individual member states and multinationals be exchanged multilaterally with other national tax administrations. For a fuller discussion of BASF lobbying on tax issues, see Annex
BASF has been a vocal opponent of OECD and European avoidance. In particular, the company has formally opposed reforms that would require greater public transparency by multinationals. BASF opposed the European Commission’s proposal to mandate public disclosure of the Country-by-Country Reports of key tax-
Throughout this report the terms “BASF Group”, “BASF” or just “Group” are used to refer to the multinational enterprise as a whole. “BASF SE” is used
Bundestag against requiring public disclosure, claiming that
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Greens/EFA Group - TOXIC TAX DEALS
Iv. BASF in the Netherlands: Looks can be deceiving On paper, it looks as if BASF has a massive presence in the Netherlands, encompassing 29 distinct business entities with assets of more than €13 billion. But looks can be deceiving. Most of BASF’s “Dutch” assets are accounted for by at least subsidiaries through six high-level Dutch holding companies (Table 1).
Table 1 - BASF, High-level Dutch holding companies (FY2014) Subsidiary
Assets (€millions)
BASF Nederland B.V.
Known subsidiaries, branches and 56
Wintershall Nederland B.V.
€ 943.42
6
Cognis B.V
€ 846.36
8
BASF Catalysts Canada B.V.
1
BASF Catalysts Asia B.V.
€ 315.44
4
BASF Huntsman Shanghai .
€ 115.05
1
TOTAL
€ 13,256.04
70*
the holding companies share ownership of a lower-level subsidiary.
This section of the report presents evidence that BASF uses its largest Dutch holding company, BASF Nederland BV, to facilitate tax avoidance: BASF’s strategic decision to own major foreign subsidiaries through BASF Nederland BV allows it to avoid German income tax on foreign-source dividends. A large share of BASF Nederland BV’s dividend income comes from low-tax foreign subsidiaries. Some of these higher-tax BASF subsidiaries. BASF Nederland BV has used tax loopholes and incentives to achieve a near-zero tax rate on its Dutch operating and elsewhere, via intra-Group sales and licensing.
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graph 4: BASF subsidiaries in the Netherlands
BASF Coatings Services B.V. Employees: 56
BASF DOW HPPO Holding B.V. Employees: 0
BASF Netherlands B.V. Employees: 662
BASF Dow HPPO B.V. Employees: 0
BASF Catalysts Canada B.V. Employees: 0
BASF Finance Europe N.V. Employees: 0
BASF Dow HPPO Technology B.V. Employees: 0
Wintershall Global Support B.V. Employees: 12
BASF Operations B.V. Employees: 0
BASF Agro B.V. Employees: 0
Wintershall Noordzee B.V. Employees: 29
Wintershall Nederland Transport and Trading B.V. Employees: 0
Wintershall Petroleum (E&P) B.V. Employees: 0
BASF Taiwan B.V. Employees: 0
HPPO Holding and Finance C.V. Employees: 0
Wintershall Services B.V. Employees: 90
BASF Battery Integration B.V. Employees: 0
Ellba C.V. Employees: 0
Cognis B.V. Employees: 0
Wintershall Nederland B.V. Employees: 247
Ellba B.V. Employees: 0
Esuco Beheer B.V. Employees: 0
BASF subsidiaries in the Netherlands
Esuco Beheer B.V. Employees: 0
BASF Catalysts Asia B.V. Employees: 0
BASF Belgian Holdings LLC Employees: 0
BASF Huntsman Shanghai Isocyanate Investment B.V. Employees: 0
Ciba Specialty Chemicals Water Treatments B.V. Employees: 0
Wintershall Exploration and Production International C.V. Employees: 7
Ciba Holding Nederland B.V. Employees: 0
BASF Agrochemical Products B.V. Employees: 0
4.1. BASF Nederland BV: Tax advantages of a Dutch holding company and permanent establishments spread across 16 foreign countries, including the United States, Japan, China, Vietnam, employees in the Netherlands.
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Greens/EFA Group - TOXIC TAX DEALS graph 5: BASF Nederland BV, Subsidiaries and associated entities (FY2014) Cognis Australia Pty. Ltd. AUSTRALIA 100% BASF Australia Ltd. AUSTRALIA 100% Ciba (Australia) Pty. Ltd. AUSTRALIA
Novolyte Technologies Ltd. CHINA
BASF Vietnam Ltd. VIETNAM
Figment Manufacturers of Australia Ltd. AUSTRALIA
?
50%
60%
100%
100%
80%
100%
100%
100% 100%
100%
BASF Central Asia LLP KAZAKHSTAN
BASF Holdings South Africa Pty. Ltd. SOUTH AFRICA
Direct ownership
Indirect ownership (Partial list)
BASF Mineral Oy FINLAND
BASFIN Corporation 100% UNITED STATES
BASF Americas Corporation UNITED STATES
Chemicals Finance Belgium Comm.V. BELGIUM (Dissolves 2016)
BASF Dow HPPO Technology B.V. NETHERLANDS
BASF Metals GmbH SWITZERLAND
BASF Pharma (Evionnaz) S.A. SWITZERLAND
BASF Schweiz AG SWITZERLAND
BASF Catalysis UK Holdings Limited UNITED KINGDOM
100%
BASF West Africa Limited NIGERIA
BASF Construction Chemicals South Africa (Pty.) Ltd. SOUTH AFRICA
FLLC BASF. Belarus BELARUS
100% 100% 100% 100% 100%
50% 99%
BRANCH
BASF Agro B.V. NETHERLANDS
1%
?
99.99%
BASF USA Holdings LLC UNITED STATES
Ellba B.V. NETHERLANDS
BASF Agro B.V. SWITZERLAND 50%
0.01%
Ellba C.V. NETHERLANDS
49%
BASF Operations B.V. NETHERLANDS
100%
100%
BASF Kasplan Yapi kimyasallari Sanayimehud mesulliyyeti cemiyyeti AZERBAIJAN
BASF Plastic Additives Middle East S.P.C. BAHRAIN
100%
90%
50%
BASF Netherlands B.V.
50% 99%
0.01%
0.01%
Esuco Beheer B.V. NETHERLANDS
HPPO Holdings and Finance C.V. NETHERLANDS
BASF Dow HPPO B.V. NETHERLANDS
50%
100%
100%
Centre Sdn. Bhd. MALAYSIA
BASF Petronas Chemicals Sdn. Bhd. MALAYSIA
BASF LLC MONGOLIA
100% 100%
BASF Construction Chemicals (Beijing) Co. Ltd. CHINA
100% 100%
100% 100% 99% 100%
100%
BASF Belgian Holdings LLC UNITED STATES
BASF Dow HPPO Holdings B.V. NETHERLANDS
BASF Polyurethanes Benelux BV NETHERLANDS
BASF Argentina S.A. ARGENTINA
Nippon Alkyl Phenol Co. Ltd. JAPAN
BASF East Asia Regional Headquarters Limited CHINA BASF China Limited CHINA
BASF Japan Ltd. JAPAN
100%
BASF Battery Integration B.V. NETHERLANDS
BASF South East Asia Pte. Ltd. SINGAPORE BASF T.O.V. TAIWAN
BASF Taiwan B.V. TAIWAN
BASF Chemicals India Pvt. Ltd. INDIA
BASF Taiwan Ltd. TAIWAN
BASF Agrochemicals Products B.V. NETHERLANDS BRANCH
100%
BASF Agrochemical Products B.V. PUERTO RICO
BASF Dow HPPO Production BVBA BELGIUM
BASF Belgian Holdings LLC NETHERLANDS
1%
BASF Industrial Metals LLC RUSSIA
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Background: The “overly generous” Dutch participation exemption
The consequence is that dividends repatriated go to the Netherlands, where they are 100% tax-exempt, rather than to Germany (where they would only be 95% tax-exempt). Dividends paid to BASF Nederland BV by Dutch subsidiaries with earnings from foreign permanent establishments are also tax-exempt.
holding company to receive dividends from non-German operations, rather than repatriating those earnings to BASF SE in Germany. order to prevent companies from being taxed twice on the same income, national tax systems typically grant a participation exemption to all or most dividend income received by companies from their own subsidiaries. The participation exemption is a logical and necessary feature of modern tax systems, but it can be abused in cases where the dividend-paying subsidiary is located in a low- or no-tax jurisdiction and the dividend-receiving parent company is located in a jurisdiction which does not have strong anti-abuse laws. A recent working paper prepared for the European Commission concluded that the Dutch apply their 100% participation exemption “too generously” because it is available even in cases where the subsidiary is tax-resident in a tax haven, or where the subsidiary was already able to obtain a deduction for the dividend payment.12 This means that the Dutch participation exemption can be abused to achieve double non-taxation on dividends from subsidiaries located in low- or no tax jurisdictions.
BASF Nederland BV booked €5.55 billion in net income but tax rate of 0.035%.13
years covered by this report, BASF’s statutory income tax in Germany varied from 29% to 30%, including federal income tax, the municipal-level trade tax and the solidarity tax. As a result, if foreign dividends had been paid to BASF SE or other German subsidiaries over this period, they would have been taxed at an effective rate of between 1.45% and 1.5%. By directing €5.99 billion in dividends to BASF Nederland BV through FY2014, the BASF Group avoided an estimated period, BASF Nederland BV passed along just €958.1 million in dividends to BASF SE, in Germany.
Avoiding German income tax on dividends
Avoiding German income tax on foreign-source dividends Estimated 5-year tax avoidance, FY2010 – FY2014: €73.3 million
BASF made the decision to own many foreign subsidiaries through holding companies domiciled in the Netherlands, rather than Germany, where the company is headquartered.
Table 3 - BASF Nederland BV: Estimated German income tax avoided on foreign dividends. FY2010-FY2014 (Euros x 1,000).
Dividends received
2014
2013
2012
€659,653
€399,554
€2,968,524
€900,000
€6,000
€201
€51,900
1.45%
1.45%
1.45%
1.45%
Dividends paid by BASF Nederland BV to BASF SE German tax rate on dividends*
1.50%
German tax avoided (paid)
€9,895
2011
2010
€5,991,574
€18,403
* Based on application of the 95% participation exemption and the statutory income tax rate (2014: 30%; 2010-2013: 29%).
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TOTAL
€958,101
€73,315
Greens/EFA Group - TOXIC TAX DEALS
BOX1 Why multinationals love Dutch special purpose entities The Netherlands is a popular place for multinationals to establish special purpose entities, including holding companies, commonly used in aggressive tax planning. Features of the Dutch tax system which make it attractive to multinationals include: 15 A 100% tax exemption on dividend income and capital gains related to subsidiary holdings. A large and favourable tax treaty network that reduces withholding tax on dividends paid to and from Dutch holding companies. The presence of high-quality consultancy and administrative services, which allow multinationals to maintain The absence of withholding tax on outgoing interest and royalty payments, which makes the Netherlands a taxThe willingness of Dutch authorities to grant secret tax rulings that provide legal certainty for aggressive tax planning schemes. A “patent box” regime that can reduce taxes on foreign-source intellectual property income to 5%. The ability to deduct capital losses when they become likely, as opposed to when they have actually been realized through a sale of the asset in question. The authorities’ acceptance of hybrid loans which facilitate double non-taxation by treating foreign-source interest payments as tax-exempt dividends.
4.2 €1.8 billion in tax-exempt dividends from low-tax subsidiaries exemption have been appropriately taxed in the source country. This makes Dutch holding companies attractive places for and Switzerland sent €1.8 billion in dividends to BASF Nederland BV (Table 4).
Table 4- Dividends paid to BASF Nederland by low-tax subsidiaries 16; FY2010-FY2014, Euros x 1,000 Subsidiary BASF Agro BV
Country Netherlands (Swiss branch)
BASF Agrochemical Products BV
Netherlands (Puerto Rican branch)
BASF South East Asia Pte Ltd
Singapore
BASF Metals GmbH*
Dividends paid
6.2% € 591,932
€ 41,901
Malaysia
€ 2,962 € 1,809,337
from the Companies Commission of Malaysia for FY2014 (0%) and FY2015 (0.15%). ** This is an estimate of the likely maximum tax rate, in accordance with tax incentives available Malaysia.
13
2.1% 11.4%
Switzerland
TOTAL
Tax rate**
8% to 10%** <1%
structuring their operations so that subsidiaries in high-tax revenues from transactions with BASF Group companies, including European subsidiaries (Table 5). This could allow revenue flows (often in the form of royalties, management fees, or interest on loans) are directed to low-taxed subsidiaries.
strategies which exploit flaws in international tax rules, especially transfer pricing rules concerning the allocation of income among subsidiaries of a multinational group which trade with each other.
Table 5 summarizes the evidence that the low-tax
Transfer pricing rules generally require multinationals to treat their subsidiaries as if they were independent entities, dealing at “arm’s length” with each other.
of their income from transactions with other BASF Group More shifting involving two of these subsidiaries, BASF Agro BV and BASF Agrochemical Products BV, is presented later in the report (see p. 30).
tax subsidiaries by manipulating prices. But “arm’s length” 18
And this encourages multinationals to minimize taxes by
Table 5- Low-tax subsidiaries, evidence for large-scale intra-company transactions; FY2010-FY2014, Euros x 1,000
Subsidiary
Net sales to BASF Group companies
BASF Agro BV (Netherlands/Switzerland) BASF Agrochemical Products BV (Netherlands/Puerto Rico)
€ 2,199,996
BASF South East Asia Pte Ltd (Singapore)
€ 18,202,400
Sales to group companies as % of total Sales
% of sales to Group companies attributed to Europe
92.9%
56% 39%
44.0%
Not Disclosed
(Malaysia)
Financial statements describe this subsidiary as a “Functional and corporate services provider to its related companies.” 19
BASF Metals GmbH (Switzerland)
This company is responsible for trading in metals commodities and hedging price risks in the metal markets to ensure that “BASF sites and end users are supplied regularly and consistently with metals.”20 a portion of its income from intra-company sales and/or commissions from other BASF Group companies.
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Greens/EFA Group - TOXIC TAX DEALS
BASF Metals GmbH SWITZERLAND
Centre Sdn. Bhd. MALAYSIA
Group companies € 41.9 M
€ 2.96 M
BASF Netherlands B.V. 5 - YEAR EFFECTIVE TAXE RATE 0.035% Sales to Group companies not disclosed
€ 345.4 M BASF South East Asia Pts. Ltd. SINGAPORE
€ 827.2 M
BASF Agro B.V. NETHERLANDS 5 YEAR EFFECTIVE TAX RATE: 6.2%
€ 591.9 M BASF Agrochemicals Products B.V. NETHERLANDS
Branch
BASF Vietnam Ltd. VIETNAM INDIA
BASF Agro B.V. SWITZERLAND
56% of sales to BASF Group companies
39% of sales to BASF Group companies
BASF Agrochemicals Products B.V. PUERTO RICO
From FY2010 to FY2014, BASF Nederland BV received €1.8 Bullion in tax-exempt dividends from low-tax subsidiaries. Some of these subsidiaries earn
4.3 Using a “hybrid loan” to avoid tax
But in the Netherlands, the hybrid is treated as an equity investment and the income received by the Dutch parent/
as a hybrid loan to capitalize subsidiaries – and avoid tax. The “overly generous” Dutch participation exemption allows companies to structure hybrid loans so that the income they generate is not taxable. The hybrid is treated as a loan in the jurisdiction of the borrower/subsidiary and consequently payments on the loan are considered tax-deductible interest.
the 100% participation exemption. Dutch tax law allows for this outcome in cases where the Dutch parent company has an ownership interest in the borrower and the hybrid has repayment is subject to the performance of the borrower. 21
15
graph 6: Mechanics of the hybrid loan executed via Chemicals Finance Belgium BASF Nederland B.V
1
BASFIN US pays a €2.36 Billion dividend to BASF Nederland BV (2012)
BASF Nederland B.V BASF Nederland BV forms a new
€2.36 Billion DIVIDEND
2
BASFIN US it (2012)
BASFIN US United States
3
BASF Nederland BV makes a 3.15 billion
4
BASFIN US United States
BASF Nederland B.V €3.15 Billion Loan
(2012).
BASFIN US (2012)
5
CHEMICALS FINANCE BELGIUM C.V
BASFIN US United States Assets $8 Billion
CHEMICALS FINANCE BELGIUM C.V
€3.15 Billion Loan
6
BASFIN US pays €561.3 million
BASF Nederland B.V
(FY 2012 to FY 2015)
CHEMICALS FINANCE BELGIUM C.V
€494.7 million FY12-FY15
pays €494.7 million in BASF Nederland BV (FY 2012 to FY 2015)
From FY2013 through FY2015, BASF Nederland BV reported about a 500 million Euros in payments and foreign exchange
€561.3 million
BASFIN US United States Assets $8 Billion
FY12-FY15
CFB used the loan from BASF Nederland BV to fund a loan to BASF to funnel €561.3 million in tax-deductible interest from the United States to Belgium, most of which was passed along to the Netherlands. Ultimately, the arrangement likely generated a large tax savings for BASF in the United States, where the company would have avoided an estimated €177.9 million in tax, based on the U.S. statutory tax rate of 35%, and taking into account the small amount of tax paid on the interest income left in Belgium (see Box 2 for a more detailed description of the hybrid loan). However, it is impossible to fully understand the hybrid loan arrangement
to another BASF subsidiary, Chemicals Finance Belgium CV
exemption, which means the underlying income escaped tax in both jurisdictions. But it is even a little more complicated.
A €3 billion hybrid loan to achieve double non-taxation Estimated tax avoided over three years, FY 2013 to FY 2015: €169.2 million
required to disclose their annual accounts.
BOX2 Details of the hybrid loan from BASF Nederland BV to Chemicals Finance Belgium At the end of 2012, BASF Nederland BV transferred its US$8 billion stake in the BASF Group’s U.S. operations to a new Belgian subsidiary it formed, a partnership called Chemicals Finance Belgium CV (CFB). Just prior to this, BASF 22 which it promptly recycled loan to Chemicals Finance Belgium CV, which then on-loaned the funds to the U.S. entity.23 U.S. asset into a debt that was then used to manufacture tax deductions for both the U.S. and Belgian subsidiaries involved in the transaction. And when the payments from CFB in Belgium arrived at BASF Nederland BV they were exempt from tax under the Dutch participation exemption.
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Greens/EFA Group - TOXIC TAX DEALS
The Anti-Tax Avoidance Directive (ATAD), once implemented by all Member States, would prohibit the
doubtful, then, that BASF Nederland BV plays a substantial role in managing its subsidiaries.
the EU. This would likely rule out the use of the structure described here. But it would not prevent European-based
structure designed for tax avoidance, European jurisprudence would likely prevent the German tax administration from challenging the arrangement using the country’s controlled foreign company (CFC) or general anti-avoidance (GAAR)
EU subsidiaries. Such cases should be covered by the ATAD2 proposal, dealing with hybrid mismatches between EU and non-EU countries.
European Court of Justice ruled that member states may only restrict the freedom of establishment in cases where at circumventing the law of the member state and do not go beyond what is required to do so.25 Thus, BASF can protect itself from the application of German anti-avoidance rules
Netherlands and is able to reduce its taxes by doing so,
activities in one subsidiary.
or its subsidiaries exploit illegal preferential tax schemes or
4.5 Loopholes and incentives to avoid tax on Dutch
that would constitute tax avoidance or even evasion. But The guiding principle of the European Commission’s work on corporate tax reform is that companies should pay tax This raises a critical question concerning BASF Nederland BV. Does it play a meaningful role in overseeing the activities of its subsidiaries, or is that work actually performed by BASF personnel in
also an operating company, with 662 employees at eight sites.26 Most of the company’s non-dividend income during
But BASF Nederland BV discloses that it only has 11 “key management” personnel, which does
sales to undisclosed BASF subsidiaries in the Netherlands and Germany, and from interest and foreign exchange gains on loans and deposits with Group companies. Even after excluding tax-exempt dividend income, BASF Nederland BV achieved an effective tax rate of 0.31% over the 5-year period from FY2010 to FY 2014 (Table 6). This suggests that BASF Nederland BV’s sales to Group companies in
and a globe-spanning network of subsidiaries.24
those countries and shifted them to a Dutch subsidiary with a near-zero tax rate.
Table 6 - BASF Nederland BV, Tax overview; FY2010 – FY2014 (Euros x 1,000) Pre-tax income
Net operating and
Income tax
Overall effective tax rate
Effective tax rate, excluding income from subsidiaries
€ 5,550,488
€ 629,333
€ 1,969
0.035%
0.31%
17
those engaging in such a policy.” The OECD Base Erosion income is partly explained by the impact of the hybrid loan arrangement discussed above (p. 23). But the company also
about patent boxes as a tool for tax avoidance. Finally, even
Dutch operating companies, including the “innovation box” and deductions for unrealized capital losses.
incentives, especially those related to intellectual property, but which do not seem to foster R&D.
The Dutch Innovation Box
All patent box regimes in Europe were declared contrary to EU law in 2014. Subsequently, Member States committed was validated at the OECD level. This approach requires a
from the Dutch “Innovation Box” regime. Under this regime, qualifying intellectual property income, including capital gains, is entitled to a preferential tax rate of 5%, as compared with the Dutch statutory rate of 25%.28 The
boxes and underlying research and development activities. approach ready by 1st of July 2016.
have avoided, as there is no obligation on the State or the
The Dutch government formally issued a proposal for amendments to the innovation box on 20th September 2016, 28 The government’s proposal retains the 5% tax rate on qualifying income30 and considers that innovation boxes should be excluded from any future minimum effective tax rate legislation in the
patent box.
Shifting profits and avoiding tax with the Dutch “Innovation Box” Tax savings for BASF Nederland BV and other BASF subsidiaries: Unknown
be impacted by these reforms.
Patent or innovation boxes are a type of preferential tax
Deductions for unrealized capital losses
among Member States. Currently, 12 countries grant or are preparing to grant patent boxes or equivalent schemes, which could facilitate tax avoidance rather than genuinely encouraging the promotion of R&D in these countries.
The Netherlands allows companies to deduct from taxable income an unrealized capital loss due to an “impairment” in the book value of its assets, as opposed to an actual loss realized upon the sale of the assets.31 During the four-year period from FY 2011 to FY2014, BASF Nederland BV took €288.5 million in tax deductions for capital losses attributed to impairments of its subsidiaries.32 This allowed the
tax matters but unfortunately is not always linked to where real economic activity takes place. In November 2014, the European Commission criticized patent boxes as ineffective and costly: “patent boxes introduce a preferential rate for income from innovations
on the statutory 25% corporate income tax.33
Unrealized capital losses to offset operating income Estimated tax avoided by BASF Nederland BV, FY 2011 to FY2014: €72.1 million
Rights.” The Commission added that “Tax incentives for income generated by R&D, mostly patent boxes, can result in large decreases in tax revenue for all governments, including
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V. BASF’s Crop Protection division: Red flags for profit shifting This section tells the tale of three BASF subsidiaries in the company’s Crop Protection division, two of which are subsidiaries of the Dutch holding company, BASF Nederland BV. These companies trade heavily with other
Netherlands, but operate from foreign branches – one in Puerto Rico and the other in Switzerland. Both of these
circumstantial evidence that intra-Group transactions
period from FY2010 to FY2014, thanks to preferential tax rates in Puerto Rico and Switzerland. The third subsidiary, which operates three-factories in France, had a high effective
Existing transfer pricing rules are supposed to prevent the tax over the 5-year period, despite recording more than €2.2 billion in sales. This contrast raises questions about the
BOX3 An American tax expert comments on the failure of transfer pricing rules and the independent entity principle The members of large multinational groups of corporations are not separate economic actors. The point of vertical licensed to outsiders. But the federal income should be taxed, or more likely, not taxed. out of proportion to any economic activity taking place there. Some income is not taxed anywhere. Americans call it “nowhere income.” Europeans call it “white income.” The Guardian and Bloomberg have published extensive, well-researched stories–complete with pictures laymen can understand–describing the process by which multinationals succeed in minimizing taxes in countries in which they do business. Suppose a U.S. multinational wants to sell high-margin Chinese-made products to German customers. The its German distributor to a stripped-risk intermediary called a commissionaire to limit what would otherwise be sales Lee Sheppard, “Transfer Pricing as Tax Avoidance” Forbes (25 June 2010). http://www.forbes.com/2010/06/24/tax-
5.1 Background: Switzerland’s preferential tax regime for multinationals
preferential tax regimes violate the state aid provisions of the 36 The Commission noted in its decision that the regimes provide low tax rates to subsidiaries responsible for management and coordination
The EU concluded a bilateral agreement with Switzerland in 2014, requiring the latter to eliminate preferential federal and cantonal tax regimes for companies which conduct business primarily outside of Switzerland, or whose main 34 In some cantons, the tax incentives – which have not yet been eliminated – typically reduce the effective tax rate to between 5% and 8%.35
intellectual property licensing and re-invoicing – all of which can be “detached from the production and sales functions” performed elsewhere.
19
5.2 BASF Agro BV: Dutch subsidiary uses Swiss branch for low taxes
FY2010 to FY2014 came from sales to BASF companies. Europe, with €3.8 billion in purchases, was BASF Agro BV’s biggest market, followed by Mid and South America (€1.24
While the EU was engaged in protracted negotiations with Switzerland over the elimination of the preferential tax regimes, BASF continued to allocate billions of Euros in
region (€456.9 million).42 And there is evidence that BASF Group companies also act as suppliers to BASF Agro BV
them. One of these subsidiaries is BASF Agro BV, a trading and intellectual property holding company in BASF’s Crop Protection division.
appears to earn its revenues by acting as an intermediary in intra-group trade is consistent with – but does not prove –
BASF Agro BV is a Dutch company, but it operates entirely
There is evidence that BASF transfers intellectual
effective tax rate is even lower.38 from FY2010 to FY2014, BASF Agro BV recorded €6.3 billion in sales to BASF Group companies, sent €838.8 million in
avoid tax. BASF Agro BV owns, and continues to acquire, patents on some of the Crop Protection division’s key products.43 And there is evidence that BASF transfers intellectual property
million and paid only €63.8 million in income tax – for an 39
maximized...”44 allocated to it by BASF. And there is circumstantial evidence
The international tax experts in the BEPS Monitoring Group note that, “tax avoidance planning often involves the transfer of partially developed intangibles to a low or zero-taxed associated enterprise” that has little or no “capability to either conduct or even oversee the completion of the intangible project.”45 By transferring intellectual property while it is still (purportedly) in the early stages of development – i.e., not worth very much – the “arm’s length” price to the R&D subsidiary in a higher-tax jurisdiction can be minimized. Where the acquiring company has no research capacity of
sales, assets and staff, which suggests that the income economic activity. to sales) of 14.2% – twice that of the BASF Group as a whole. This is a striking result for a subsidiary that neither processes the goods it distributes nor engages in external
to the R&D subsidiary. By arranging for BASF Agro BV to sublicense intellectual property to BASF Group companies with higher tax rates, BASF could shift income from these higher-taxed subsidiaries to the low-tax BASF Agro BV. For example, BASF Agri-Production SAS, in France, likely pays BASF Agro BV for the right to manufacture Fipronil,46 to which BASF Agro BV owns the intellectual property rights. BASF may also take advantage of generous Swiss rules for amortizing intellectual property to rapidly convert the cost
furniture.40 each of its 39 (on average) employees during this period, compared with just €46.5 thousand for the BASF Group.41 These disproportionalities suggest – but do not prove – that
other BASF Group companies, which would provide ample The vast majority (93%) of BASF Agro BV’s turnover from
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to FY2014, BASF Agro BV took €364.4 million in deductions related the amortization of concessions, licenses and intellectual property rights.
a low-tax manufacturing subsidiary in BASF’s Crop Division the contrast between these subsidiaries is also dramatic.
The European Commission determined long ago that the preferential Swiss tax regime violates the Swiss-EU Free
of just €3.8 thousand per employee, compared to €1.1 million for BASF Agrochemical Products BV and €4.8 million for BASF Agro BV.48
avoidance. There is circumstantial evidence that these poor results
Profit shifting to a low-tax Swiss/Dutch trading company Estimate of 5-year tax avoidance, FY2010 through FY2014: €208.3million
volume of transactions with other BASF subsidiaries. BASF Agri-Production SAS purchased almost half of its inputs from low-taxed BASF Agro BV and sold its products primarily to BASF Group companies.49 50
identity of its related company customers or their home country, which makes it impossible to determine the tax rates that would have been imposed on income which may have been shifted from elsewhere. Tax avoidance is estimated here by applying an income tax rate of 26.5% to the company’s pre-tax income – the average of BASF’s overall effective tax rate and the statutory rate in Germany over the period from FY2010 to FY2014. This yields an estimate of €208.3 million in tax avoided over the 5-year period, after subtracting tax paid by BASF Agro BV in Switzerland.
mechanisms, these intra-group trading activities would France in order to avoid having them taxed at the statutory rate of 33.33%.
Using intra-group trade to shift profits out of France Estimated 5-year tax avoidance, FY2010-FY2014: €37.7 million
5.3 BASF Agri-Production SAS: Exporting French BASF Agri-Production SAS is a manufacturing subsidiary in France, where the statutory rate of tax is 33.33%. The company operates three pesticide factories and employs 500 workers. But despite sales of €2.25 billion over the 5-year period from FY2010 to FY2014, BASF Agri-Production SAS
a percentage of sales revenues) would match that of the to the income – equal to the French statutory rate of 33.33% minus the 6.2% effective tax rate of BASF Agro BV. This methodology is based on the assumption that income stripped from BASF Agri-Production France SAS was shifted to BASF Agro BV, from whom the French company purchased about half of all inputs. This methodology yields
0.41%. especially striking when it is contrasted with the 14.2%
period from FY2010 to FY2014.
21
Table 7 -
Subsidiary
BASF Agri-Production SAS
BASF Agrochemical Products BV
BASF Agro BV
Effective tax rate
39.4%
2.4%
6.2%
Location
France
Dutch company with operations in Puerto Rico
Dutch company with operations in Switzerland
Activity
Manufacturer
Manufacturer
Employees (avg)
500
122
39
Sales to group companies (%)
Most
96.8%
92.9%
Sales €9.2 million
employee
€962.8 million
€6.0 million
€16.5 million
€63.8 million
€ 0.004 million
€1.1 million
€4.9 million
0.41%
39.3%
14.2%
5.4 BASF Agrochemical Products BV: Puerto Rican incentives provide a 2.4% tax rate
it paid just €16.5 million in tax – for an effective tax rate of 2.4%.51 During this period, BASF Agrochemical Products
Agrochemical Products BV, and the French subsidiary, BASF Agri-Production SAS, are very similar. They both manufacture pesticides for BASF’s Crop Protection division and do business primarily with other BASF Group
company in the Netherlands, BASF Nederland BV.
Shifting profits to a low-tax Dutch/Puerto Rican subsidiary Estimated 5-year tax avoidance, FY2010-FY2014: €167.3 million
companies couldn’t be more different. Whereas BASF AgriProduction SAS in France faces relatively high tax rates and
For BASF Agrochemical Products BV, potential tax avoidance is estimated by applying a tax rate of 26.5% to net income reported by BASF Agrochemical Products BV and subtracting taxes actually paid from the result. This methodology yields an estimate of €163.3 million in tax avoidance over the 5-year period.
BASF Agrochemical Products BV is a Dutch company, but it operates entirely from a branch in Puerto Rico, where it has
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Greens/EFA Group - TOXIC TAX DEALS
BOX4 BASF avoids tax while Puerto Ricans suffer from debt crisis BASF Agrochemical Products BV secured its 2.4% effective tax rate through incentives granted by the Puerto Rican government. Puerto Rico, meanwhile, is facing a debt crisis so severe that the United States recently put an unelected 52
Mired in economic recession for more than ten years, and disadvantaged in many ways by the island’s semi-colonial status, Puerto Rico’s government agencies issued a massive amount of debt to deal with the worsening economic hedge fund investors swooped in to buy Puerto Rican debt up at bargain prices. Then the hedge funds demanded austerity measures to ensure the government prioritized debt repayment. As journalist David Dayen writes, the Puerto Rican government has “cut back on health care and public transportation 53
23
” Almost half the population now lives
Vi. BASF’s other Swiss trading companies These companies are not required by Swiss law to make companies in Switzerland which serve as trading and These subsidiaries are well-placed to take advantage of the preferential Swiss tax regimes that Switzerland has agreed to eliminate by 2019 under pressure from the EU.
and Corporate Regulatory Authority of Singapore, where the company has a branch. These documents reveal that
Times calls “one of the most aggressive tax-cutters among Switzerland’s 26 cantons...”54
from FY2010 to FY2014 – an overall effective tax rate of 10.2%.58 That is consistent with widely reported estimates
The subsidiaries include: BASF Intertrade AG, which manages chemicals trading
tax rate of between 8% and 11% under the preferential tax regimes available to multinationals.59
period from FY 2010 to FY 2014.55 Wintershall Oil AG, which manages energy trading and
Figure 1, below, is a Swiss corporate lawyer’s illustration of the trading company structure used by multinationals
from FY 2010 to FY 2014.56 BASF Metals GmbH, which manages metals trading and
it is challenging to understand this diagram, don’t be too concerned. Just keep in mind that, in all cases, the objective
from FY 2010 to FY 2014.
Figure 1 Chain Management (TESCM)
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Greens/EFA Group - TOXIC TAX DEALS
Shifting profits to a low-tax Swiss trading subsidiary Estimated tax avoidance, FY 2010-FY 2014: ` More than € 46.9 million
at the statutory rate in Germany. This methodology is based would have been assigned to Germany, where BASF has a large administrative apparatus, in the absence of tax planning opportunities in Switzerland or elsewhere. This
calculating the difference between the tax actually paid by
€46.9 million (Table 8).
Table 8 Euros) 60 Company BASF
After-tax income (reported)
Pre-tax income (est.)
Swiss tax paid (10.2%)
€ 220.9
€ 245.9
€ 25.0
Tax at German rate
Tax avoided
€ 46.9
BOX5 Swiss counter-reforms will replace old loopholes with new loopholes
agreement to eliminate the preferential tax regimes.61 But when the preferential regimes are phased out in 2019, CTR III replaces them with a comprehensive set of aggressive tax incentives that will seek to maintain Switzerland’s status as a European tax haven, while complying with stricter OECD and EU standards.
of the old incentives to obtain equivalent tax relief for up to 10 years. These capital step-up provisions will also provide 62
rates to levels that will provide companies with overall effective tax rates (cantonal and federal combined) as low as 12%.
25
Vii. Belgium: Profit shifting with generous loopholes Two BASF subsidiaries in Belgium have exploited generous shifting and tax avoidance.
BASF Antwerpen NV is an operating company with major
7.1 The Notional Interest Deduction
for Belgian and foreign subsidiaries in China, Egypt, the Netherlands and – formerly – Malta.66 From 2005 to 2012, Belgian tax authorities granted BASF Antwerpen NV
companies to take large deductions, even when “no payment occurs or interest expense is booked.63
loophole, which this year was deemed illegal state aid by the European Commission. The Commission found that companies using this deduction were able to reduce their tax base by more than 50 percent.68
for the notional (“hypothetical” would be a more accurate term) interest expense it would have incurred if it had been capitalized by its parent company with debt.64 originally conceived as a replacement for the coordination center regime, a preferential tax scheme for multinationals that was deemed illegal state aid by the European Commission in 2003 and later phased out by Belgium.
allows Belgian subsidiaries of multinationals to deduct income corresponding to so-called “excess payments” Belgian subsidiary of a multinational received more than an arm’s-length price in a transaction with a foreign subsidiary
BASF Belgium Coordination Center CV (BCC) is a Belgian subsidiary responsible for BASF Group treasury functions (cash-pooling, hedging of exchange rate risk, etc.), certain intra-Group sales in Belgium and Luxembourg and EU-level government relations. Almost all of BCC’s revenues are derived from the services it provides to other BASF Group companies.
allow the recipient company to exclude the “excess” portion of the payment from its taxable income.69 The Belgian authorities, however, took no responsibility for ensuring that the excluded income was taxed in the source country. The loophole was therefore easily exploited by multinationals double non-taxation.
BASF Belgium Coordination Center, Notional Interest Deduction Estimated tax avoided over 5 years, FY2010 through FY2014: €202 million
BASF Antwerpen, Excess profits scheme Estimated tax avoided since 2005: at least €46 million
From FY2010 through FY2014, BCC reported taking €594.4 million in notional interest deductions on €618.1 million
company has refused to tell reporters how much tax it was able to avoid. But the Company has disputed news reports saying that it will have to pay €200 million in back taxes as a result of the Commission’s ruling. The €46 million estimate for tax avoidance reported here is based on BASF Antwerpen NV’s disclosure that it set aside €46 million in 2015 for the purpose of paying the tax liability it anticipates as a result of the Commission’s ruling.
taxes.65 effective tax rate of just 1.29%, saving the company an estimated €202.6 million in taxes, as compared with Belgium’s statutory rate of 33.99%. Because BCC’s untaxed income derived primarily from expenses which would have been tax deductible for other BASF Group companies this is taxation.
The Belgian government has appealed the European
The annual “notional interest” deduction BCC can take on its €15.39 billion in equity should enable it to more or less
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Greens/EFA Group - TOXIC TAX DEALS
taxes while the appeal proceeds.. implementation of the Commissionâ&#x20AC;&#x2122;s decision. That case has yet to conclude. Thus, Belgium appears to be moving away from tax competition based on generous exemptions and deductions to tax competition based on low rates.
Overview of the BASF site in Antwerp, Belgium - Credit: BASF
27
Viii. Branching out in Malta: BASF’s €5 billion Group finance company therefore eligible for Malta’s preferential tax regime. BASF Finance Malta GmbH’s assets consist entirely of loans to undisclosed BASF Group companies. This implies that the company’s income consists of tax-deductible interest payments from BASF subsidiaries, which could facilitate
Commission, BASF disclosed the existence of a new of 2011, BASF apparently transferred these assets to a new German subsidiary, BASF Finance Malta GmbH. This at the Mayfair Business Centre in St. Julian’s, Malta – and
graph 7: EY tax consultants explain Malta’s tax refund system
Refunds of tax Subject to certain transitional provisions, the refundable credit system has been extended to devidend distributions by all companies resident in Malta and registered on or after 1 Juanuary 2007.
qualify for the six-sevenths refund but are subject to a refund oh
participating holding which does not satisfy the anti-abuse conditions.
The types of refunds are listed below.
The six-sevenths refund
If the foreign-source interest payments to BASF Malta Finance
A person, in receipt of a dividend paid to him by a compagny registred Foreign Income Account not consisting of passive interest or royalties, may claim a refund of six-sevenths of the tax paid by the distributing
subsidiaries’ foreign parent compagny would trigger a 5/7 tax refund to the parents from Malta.
dividend.
The two-thirds refund made by companies that do not claim any form of double tax relief,
BASF Finance Malta GmbH receives interest from foreign BASF payment by BASF Malta Finence GmbH to its foreign parent com-
of any form of double tax treaty relief, (double tax treaty relief, unilateral relief or that flat rate foreign tax credit) are subject to a two-thirds refund.
business-in-malta-new.pdf
As an EU member, Malta provides multinationals with all the
Shifting profits to Mala with intra-group interest payments Tax avoidance: Cannot be estimated from public filings
also offers a tax refund system that allows multinationals to achieve tax rates of between 0% and 10% on foreignsource income.80 are complex and they have changed somewhat since 2010.
Malta GmbH avoided because the company only publishes information.
foreign-source income, when that income is distributed to a foreign parent company as a dividend.
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Greens/EFA Group - TOXIC TAX DEALS
BOX6 About BASF Malta Finance GmbH There are few details in the public record regarding BASF Finance Malta GmbH’s purpose or activities. Given the timing of its predecessor company’s formation and the amount of assets involved, it is possible that the subsidiary was 81 One of the company’s two managing directors is an accountant and business executive, who worked for Degussa prior to joining BASF Finance Malta.82 The other
of BASF Antwerpen NV in Belgium.83
29
IX. CONCLUSION and policy proposals This report builds on a wealth of recent reporting and research into aggressive tax avoidance by multinational enterprises. The material presented here reinforces four overall conclusions which emerge from this growing body of work.
01
We need greater transparency and public Country-by-Country Reporting (CbCR) This research into BASF’s tax planning strategies has uncovered apparent disproportionalities between
The European Commission’s proposal to mandate public Country-by-Country Reporting (CbCR) would go a long way to solve this problem by requiring large multinationals to publicly disclose country-level data on the nature of their economic activities, the number of people employed, turnover, intra-group as tax havens.84 but it should go a step further by requiring disclosure for all countries in which multinationals operate. This is especially important for developing countries where under-resourced tax administrations face an uphill struggle to identify and counter aggressive tax avoidance.
02
them with substantive activities. This research into BASF’s tax planning strategies reveals how easy it is for multinationals to protect transactions related to substantive economic activities. Anti-abuse rules must be strengthened in order to realize the Commission’s objective of ensuring that taxes align with real economic activity.
03
We need broad-based reforms to prevent states from replacing prohibited loopholes with “compliant” loopholes, and to prevent a race to the bottom on statutory corporate income tax rates. loopholes, some states are simply creating new loopholes they believe are compliant with emerging OECD and EU standards. There has likewise been a return to tax competition through simply lowering statutory corporate income tax rates. Ultimately, only broad-based reforms, combined with a minimum corporate income tax rate across the EU, can put a lid on aggressive tax competition and ensure that corporate income tax aligns with substantive economic activities.
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Greens/EFA Group - TOXIC TAX DEALS
04
principle and move towards unitary taxation and a Common Consolidated Corporate Tax Base (CCCTB). This report points to the most fundamental obstacle to the European Commission’s goal of ensuring a single European market while exploiting mismatches between the tax systems of member states. Corporate Tax Base (CCTB). A CCCTB would establish a single set of rules that companies operating within CCCTB).85 To be effective and fair the CCCTB must be robust enough to prevent multinationals from
The Commission has proposed moving toward a CCCTB, but has unfortunately decided upon a phased agreement can be reached. A common tax base would be a major step forward but without a transparent the impact on tax avoidance will be limited.
tax liability can be properly allocated to related subsidiaries by identifying an arms-length price for can draw on the experience of federal states with unitary tax systems, including the United States, to subsidiaries based on a limited number of “allocation keys,” including, for example, the subsidiary’s share of customers, employees and production facilities.86 The question is not whether the move to full consolidation is necessary or feasible, but rather whether there is the political will to do so.
31
x. Annex I. BASF lobbies against reforms BASF has been an increasingly outspoken opponent
tax administrations in jurisdictions such as the Netherlands, Belgium, Luxembourg and Switzerland to provide legal certainty to multinationals using aggressive tax planning
particular, the company has actively engaged the OECD the United States Congress on tax issues.
documents should not be released to countries which are not directly involved in relevant transactions because, “…the APAs or rulings are very individual agreements that cannot be generalized and easily applied elsewhere.”90
10.1 United States Since 2010, BASF has spent an average of $2.2 million per year lobbying the United States Congress. The company recently disclosed in mandatory reports that one of the issues it is lobbying on this year is, “Legislative proposals on international tax reform, including interest deductibility, inversions and earnings stripping, BEPS and country reporting requirements.”88
BASF opposed a clamp down on “commissionaire”
rules that currently allow multinationals to use so-called “commissionaire” arrangements to book sales revenues in tax haven subsidiaries rather than the countries in which sales are actually made.91 that it would lead to “additional administrative burdens for
10.2 Germany/Europe OECD BEPS Action 13 would require multinationals to provide relevant tax administrations with a country-by-
returns obligations and to additional costs connected with these obligations.”92
tax paid and accrued for each jurisdiction in which the company does business. The European Commission is considering going further to require public disclosure of
via intellectual property
German Bundestag against requiring public disclosure. The company’s representative claimed that such information would not be useful to the general public.89
The OECD BEPS Project issued a white paper in 2013 asserting the principle that income from intangibles such as patents, know-how and licenses should be attributed to the entities whose substantive activities confer value on the intangible.93 BASF opposed the effort on the grounds
10.3 OECD BASF opposed mandatory disclosure of secret tax rulings to all relevant jurisdictions
The BEPS Monitoring Group argued that the principles outlined in the paper marked a step forward, but did not go far enough to prevent aggressive tax planning using intangibles.95 94
OECD BEPS Action 13 would require multinationals to disclose the tax rulings and advance pricing agreements (APA) they have obtained to all relevant national tax administrations. Tax rulings and APAs are commonly used by
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Greens/EFA Group - TOXIC TAX DEALS
xi. Annex Ii. Key sources Notes on methods and sources
Currency translation: Where necessary, foreign currencies are translated into Euros using the exchange rates provided the BASF subsidiary in question translates currencies according to the (undisclosed) dates of individual transactions or simply uses a different rate.
behind a paywall and there is no permanent URL available. All underlying documents will be made available upon
However, it can be a challenge to access these documents because each jurisdiction has its own system for making them available to the public. This annex is intended to help researchers, journalists and policy-makers access the most report.
11.1 BASF Group annual reports and associated spreadsheets
Belgium Financial statements available, free.
France Financial statements available for purchase.
33
Germany Financial statements available, free. BASF Finance Malta GmbH (HRB 62563) Search at https://www.unternehmensregister.de Abbreviated balance sheets only. BASF SE (HRB 6000) Search at https://www.unternehmensregister.de Malaysia Search at https://www.ssm-einfo.my/ Search at https://www.ssm-einfo.my/ Malta BASF Finance Malta GmbH, branch (OC 538) Abbreviated balance sheets available through the German company register. Netherlands Financial statements available for purchase. BASF Agro B.V. ((9113314) BASF Agrochemical Products B.V. (9113315)
BASF Nederland B.V. (9022883)
BASF Agrochemical Products B.V., branch
Puerto Rico Financial statements available, free. (11431) Singapore Financial statements available for purchase.
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Greens/EFA Group - TOXIC TAX DEALS
Switzerland http://zh.powernet.ch/webservices/net/HRG/HRG.asmx/ http://www.hrazg.ch/webservices/inet/HRG/HRG.asmx/ Financial statements available for purchase through Singapore Accounting and Corporate Regulatory Authority of Singapore. http://www.hrazg.ch/webservices/inet/HRG/HRG.asmx/ BASF Schweiz AG (CHE-114.849.350) http://bs.powernet.ch/webservices/inet/HRG/HRG.asmx/ Wintershall Oil AG (CHE-103.006.181) http://www.hrazg.ch/webservices/inet/HRG/HRG.asmx/
Belgium The Belgian company registry may be searched at: https://kbopub.economie.fgov.be/kbopub/zoeknaamfonetischform. html. At each company page in the registry, a link is provided to the National Bank of Belgium (NBB) Central Balance
Switzerland The Swiss company registry is organized on a cantonal basis. Easymonitoring is a third party website that makes it easy to search for Swiss companies, regardless of the canton in which they are registered: https://www.easymonitoring.ch/
The Netherlands https://www.kvk.nl/. France https://www.infogreffe.fr/societes/. Germany Financial statements are available free through the German company register at: https://www.unternehmensregister.de.
35
Malaysia Financial statements may be purchased through the Companies Commission of Malaysia at: https://www.ssm-einfo.my/. Malta Services Authority registry of companies at: http://rocsupport.mfsa.com.mt/pages/ Puerto Rico
Singapore
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Greens/EFA Group - TOXIC TAX DEALS
REFERENCES 1.
2. 3.
4.
5.
Report) (2014). http://www.hsgac.senate.gov/download/report-caterpillars- offshore-tax-strategy-april- 1-2014; European Commission,
http://www.keepeek.com/Digital-Asset-Management/oecd/industry-and-services/measuring-globalisation-oecd-economic-globalisation“Transfer Pricing,” Tax Justice Network (ND). http://www.taxjustice.net/topics/corporate-tax/transfer- pricing/
6.
statements for FY2014 7.
BASF, “About Us: History” (Accessed 15 June 2016). https://www.basf.com/en/company/about-us/history/1865-1901.html; BASF, “BASF Headquarters,” (Accessed 15 June 2016). https://www.basf.com/en/company/career/why-join- basf/basf-at- a-glance/basf- headquarters.html; BASF, “BASF in Ludwigshafen Report
8.
BASF “About BASF’s Crop Protection division” (Accessed 8 July 2016). https://www.basf.com/us/en/company/news-and- media/news-releases/2016/04/P- US-16- 034.html; Sara Knight, “Who owns our food
9.
BASF in Antwerp Report 2015 (Accessed 8 July 2016), p. 5. https://www.basf.com/documents/corp/en/about-us/publications/reports/2016/
10.
BASF, “BASF Headquarters,” (Accessed 15 June 2016). https://www.basf.com/en/company/career/why-join-basf/basf-at- a-glance/basfheadquarters.html; BASF “BASF in Ludwigshafen Report 2013” (Accessed 15 June 2016), p.9. https://www.basf.com/documents/corp/en/about-
11.
php
12. 13.
BASF Nederland BV Financial statements for FY2010 through FY2014.
14.
BASF Nederland BV Financial statements for FY2010 through FY2014.
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15.
16.
17.
For an in-depth discussion of this issue, see: Francis Weyzig, Taxation and Development: Effects of Dutch tax policy on taxation of multinationals in developing countries (2013), p. 125.
BASF Agrochemical Products Products BV and BASF South East Asia Pte Ltd. Where necessary, national currencies are translated to Euros using historical rates as of 31 December, obtained from x-rates.com. FY2014-FY2015, obtained from the Companies Commission of Malaysia; Special tax incentives are available to multinationals which make home/pdf/2465/news/; “Tax incentives for Malaysia as a regional hub and for research and Development,” ACCA (Accessed 25 July 2016).
18. Group, Response to OECD Consultation on Transfer Pricing, https://bepsmonitoringgroup.wordpress.com/2015/02/10/transfer-pricing- risk-
19. 20. 21.
of Malaysia (9 September 2016). See BASF Group, “BASF Metals GmbH (Accessed 15 July 2016). https://www.basf.com/ch/de/company/about-us/BASF-in- Switzerland/groupcompanies/BASF- Metals-GmbH.html 2013).
22.
BASF Nederland BV, Financial statements for FY 2012, p. 42.
23.
BASF Nederland BV, Financial statements for FY 2012, pp. 29,42, 49.
24.
BASF Nederland BV, Financial statements for FY2014.
25.
For a summary of the Cadbury Schweppes decision, see: European Commission Legal Service, C-196/04 –Cadbury Schweppes plc, Cadbury
26.
BASF Nederland BV, Financial statements for FY2014; BASF, “BASF in Nederland: About Us,” (Accessed 15 July 2016). https://www.basf.com/nl/ nl/company/about-us/BASF- in-Nederland.html
27. 28. 29.
5-year period. http://www.twobirds.com/en/news/articles/2012/the-netherlands- the-innovation- box treatment of cooperatives,“ Loyens &amp; Loeff (21 September 2016). interest-deduction- limitations-and- reconsidering-dividend- tax-treatment- of-cooperatives
30.
“Dutch government launches consultation on proposed changes to the innovation box,” KPMG (23 May 2016). https://www.meijburg.com/news/dutch-government- launches-consultation- on-proposed- changes-to- the-innovation-box
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Greens/EFA Group - TOXIC TAX DEALS
31. 32. Tax avoided is estimated by multiplying the deductions taken by the statutory Dutch tax rate of 25%. 33. Tax avoided is estimated by multiplying the deductions taken by the statutory Dutch tax rate of 25%. 34. PwC, “Switzerland: an excellent choice – from a tax and business point of view,” (Accessed 16 June 2016). European Union and the Swiss Federal Council (14 October 2014). http://www.news.admin.ch/NSBSubscriber/message/attachments/36882.pdf 35. http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax- switzerlandguide-2015.pdf 36.
37. 38. 39. BASF Agro BV, Financial statements for FY2010 through FY2014. 40. BASF Agro BV, Financial statements for FY2010 through FY2014. 41. 42. BASF Agro BV, Financial statements for FY2010 through FY2014. 43. BASF Agro BV, Financial statements from FY2010 through FY2014. 44. 45. 46. 47. BASF Agro BV, Financial statements for FY2014, p. 4. 48. BASF Agri-Production SAS, Financial statements for FY2010 through FY2014. 49. BASF Agri-Production SAS, Financial statements for FY2010 through FY2014. For each of the years under consideration, BASF Agri-Production materials purchased. 50. BASF Agri-Production SAS, Financial statements for FY2014, p. 49. 51. BASF Agrochemical Products BV, Financial statements from FY2010 through FY2014. 52. David Dayen, “How hedge funds deepen Puerto Rico’s debt crisis,” American Prospect (11 December 2015). http://prospect.org/article/how-hedge- funds-are- pillaging-puerto- rico; Gillian B. White, “Puerto Rico’s problems go way beyond its debt,” The
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53. David Dayen, “How hedge funds deepen Puerto Rico’s debt crisis,” American Prospect (11 December 2015). http://prospect.org/article/how-hedge- funds-are- pillaging-puerto- rico 54. www.cnbc.com/2015/09/24/tax-avoidance- zug-a- canton-in- switzerlands-may- raise-rates.html 55. http://www.hrazg.ch/webservices/inet/HRG/HRG.asmx/ Financial statements for FY 2010 to FY 2014. Accessed through the Singapore Accounting and Corporate Regulatory Authority. 56. http://www.hrazg.ch/webservices/inet/HRG/HRG.asmx/ Financial statements for FY 2010 through FY 2014 57. http://www.hrazg.ch/webservices/inet/HRG/HRG.asmx/ statements for FY 2010 through FY 2014. 58. Authority. Currency translation using rates available at x-rates.com for 31 December. 59. Emiko Terazono and Javier Blas, “Swiss ties to trading houses under strain” (26 March 2013). Financial Times 60. 61. https://www.eycom.ch/en/Publications/20160630-Swiss- Parliament-approves- Corporate-Tax- Reform-3/download; “Swiss Corporate Tax https://www2.deloitte.com/content/dam/Deloitte/ch/Documents/tax/ch-en- tax-international- tax-review- swiss-corporate-tax- reform-iii032015.pdf; Harun Can and Petra Hess, “Switzerland: The End Of Swiss Tax Privileges For Holdings, Finance Branches, Principal And Mixed Companies” (15 April 2015). Mondaq 62. 63. “Notional interest deduction,” EY (Accessed 23 June 2016). 64. 65. BASF Belgium Coordination Center, Financial statements for FY2014. 66. BASF Antwerpen NV, Financial statements for FY2010 through FY2015. 67. Belgium (11 January 2016). 68.
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Greens/EFA Group - TOXIC TAX DEALS
69. (ex 2015/NN) implemented by Belgium (11 January 2016). 70. nutraingredients.com/Regulation-Policy/BASF- joins-multinationals- challenging-Commission- s-illegal-tax- ruling 71. “BASF: ‘Bedrag dat we moeten terugbetalen is veel lager dan 200 miljoen’” Het Nieuwsblad (12 January 2016). 72. BASF Antwerpen NV, Financial statements for FY 2015, pp. 29, 40 73. Order of the President of the General Court, Case T-131/16 R, (19 July 2016).
74. Annie-Rose Harrison-Dunn, “Capsugel takes Commission to EU court over ‘illegal’ tax scheme demands” (5 August 2016). http://www. nutraingredients.com/Regulation-Policy/Capsugel- takes-Commission- to-EU- court-over-illegal-tax- scheme-demands; Annie-Rose HarrisonRegulation-Policy/BASF- joins-multinationals-challenging- Commission-s- illegal-tax- ruling 75. “Belgium may reduce corporate income tax rate to 20% by 2020 in context of broader tax reform,” PwC (2 September 2016). http://www.pwc. com/us/en/tax-services/publications/insights/belgium- may-reduce- corporate-income-tax- rate-to- 20-- by-2020.html 76. 77. BASF Finance Malta GmbH, Abbreviated balance sheets for FY2010 through FY2014. 78. 79. BASF Finance Malta GmbH, abbreviated balance sheets for FY2010 to FY2014. 80. Business in Malta,” PwC (October 2012), pp. 108-111. 81. BASF, “Portfolio Optimization since 2005” (Accessed 15 June 2016). https://www.basf.com/en/company/investor-relations/basf- at-a- glance/strategy/portfolio-optimization/acquisitions.html 82. 83. 84. 85. European Commission, “Common Consolidated Corporate Tax Base (CCCTB),” (Accessed 2 October 2016).
86. BEPS Monitoring Group, “Response to OECD White Paper On Transfer Pricing Documentation”(No date). https://www.oecd.org/ctp/transfer-pricing/BEPS- Monitoring-Group.pdf
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87. 88.
89. “Steuerhinterziehung trifft Entwicklungsländer stark” Deutscher Bundestag (20 June 2016). reporting doesn’t provide useful information are not telling the truth” Tax Research UK (22 June 2016). http://www.taxresearch.org.uk/ Blog/2016/06/22/those-who- claim-country- by-country- reporting-doesnt-provide- useful-information- are-not- telling-the- truth/ 90. BASF Comments on the OECD White paper on Transfer Pricing Documentation (30 September 2013). https://www.oecd.org/ctp/transfer-pricing/BASF.pdf 91. but on behalf of a foreign enterprise that is the owner of these products. Through such an arrangement, a foreign enterprise is able to sell its products in a State without technically having a permanent establishment to which such sales may be attributed for tax purposes and without,
(ND). 92. 93. https://www.oecd.org/tax/revised-discussion- draft-intangibles.pdf 94. https://www.oecd.org/ctp/transfer-pricing/basf- intangibles.pdf 95.
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